345. Refer to Figure 3-22. Which of the four graphs represents the market for pizza delivery in a college
town as we go from summer to the beginning of the fall semester?
a.
A
b.
B
c.
C
d.
D
346. Refer to Figure 3-22. Which of the four graphs represents the market for cars as a result of the
adoption of new technology on assembly lines?
a.
A
b.
B
c.
C
d.
D
347. Refer to Figure 3-22. Graph A shows which of the following?
a.
An increase in demand and an increase in quantity supplied.
b.
An increase in demand and an increase in supply.
c.
An increase in quantity demanded and an increase in quantity supplied.
d.
An increase in supply and an increase in quantity demanded.
348. Refer to Figure 3-22. Graph C shows which of the following?
a.
An increase in demand and an increase in quantity supplied.
b.
An increase in demand and an increase in supply.
c.
An increase in quantity demanded and an increase in quantity supplied.
d.
An increase in supply and an increase in quantity demanded.
349. Refer to Figure 3-22. Which of the four graphs illustrates an increase in quantity supplied?
a.
A
b.
B
c.
C
d.
D
350. Refer to Figure 3-22. Which of the four graphs illustrates a decrease in quantity demanded?
a.
A
b.
B
c.
C
d.
D
351. Refer to Figure 3-22. Suppose the events depicted in graphs A and C were illustrated together on a
single graph. A definitive result of the two events would be
a.
an increase in the equilibrium quantity.
b.
an increase in the equilibrium price.
c.
an instance in which the law of demand fails to hold.
d.
All of the above are correct.
Figure 3-23
352. Refer to Figure 3-23. The movement from point A to point B on the graph would be caused by
a.
an increase in price.
b.
a decrease in price.
c.
a decrease in the price of a substitute good.
d.
an increase in income.
353. Refer to Figure 3-23. The movement from point A to point B on the graph shows
a.
a decrease in demand.
b.
an increase in demand.
c.
a decrease in quantity demanded.
d.
an increase in quantity demanded.
354. Refer to Figure 3-23. It is apparent from the figure that
a.
the good is inferior.
b.
the demand for the good decreases as income increases.
c.
the demand for the good conforms to the law of demand.
d.
All of the above are correct.
355. If the price of tickets to the World Series were set below the equilibrium price,
a.
the quantity demanded would be smaller than the quantity supplied.
b.
the demand for World Series tickets would be highly responsive to the price.
c.
there would be no transactions between buyers and sellers of the tickets.
d.
the number of persons seeking to obtain tickets to World Series games would be greater
than the number of tickets available.
356. Which of the following would cause the price of automobiles to rise?
a.
a decrease in the wages of autoworkers
b.
a reduction in the price of bus travel
c.
an increase in the price of gasoline
d.
an increase in consumer income
357. Which of the following would be the best example of consumer surplus?
a.
Jane pays $30 a month for phone service even though it is worth $70 to her.
b.
Sam refuses to pay $10 for a haircut because it is only worth $8 to him.
c.
Fred buys a car for $4,000, the maximum amount that he would be willing to pay for it.
d.
When Sue purchases a candy bar for $.50, she uses a $20 bill to pay for it.
358. If cigars and cigarettes are substitute goods, an increase in the price of cigars would result in
a.
an increase in the demand for cigarettes.
b.
a decrease in the price of cigarettes.
c.
a decrease in the demand for cigarettes.
d.
a decrease in the demand for cigars.
359. Which of the following would most likely cause the current demand for DVD players to fall?
a.
an increase in consumer income
b.
an increase in the price of DVD players
c.
an increase in the price of Blu-ray players, a substitute good
d.
the expectation that the price of DVD players will decrease sharply during the next six
months
360. Which of the following would be most likely to cause the demand for Miller beer to increase?
a.
an increase in the price of Budweiser beer
b.
a decrease in consumer income
c.
a decrease in the price of barley used to make Miller beer
d.
a decrease in the price of Miller beer
361. (I) The height of the demand curve for a commodity indicates the maximum amount the consumer
would be willing to pay for each unit of the good.
(II) The height of the supply curve for a commodity indicates the minimum price the seller would
accept for each unit of the good.
a.
I is true; II is false.
b.
I is false; II is true.
c.
Both I and II are false.
d.
Both I and II are true.
362. All things constant, a decrease in bus, train, and airplane fares will
a.
shift the demand curve for automobiles to the left.
b.
cause a movement along the demand curve for automobiles.
c.
shift the demand curve for automobiles to the right.
d.
have no impact on the demand curve for automobiles.
363. If coffee and cream are complements, a decrease in the price of coffee will cause
a.
the demand for cream to decrease.
b.
the demand for cream to increase.
c.
the demand for coffee to increase.
d.
no change in the demand for cream; only quantity demanded would be affected.
364. If the market price is above the equilibrium price, there will be a tendency for price to decrease,
causing
a.
the quantity demanded to decrease and the quantity supplied to increase until they are
equal.
b.
the quantity demanded to increase and the quantity supplied to decrease until they are
equal.
c.
both quantity demanded and quantity supplied to decrease until they are equal.
d.
both quantity demanded and quantity supplied to increase until they are equal.
365. According to the law of supply, as the price of a good decreases
a.
buyers will buy more of the good.
b.
sellers will produce more of the good.
c.
buyers will buy less of the good.
d.
sellers will produce less of the good.
366. John advertises his used car for $3,000 in the newspaper. He would be willing to sell his used car for
as low as $2,000. He is offered $2,600 for it from a buyer and accepts it. In this trade, John receives
a.
producer surplus of $3,000.
b.
producer surplus of $2,600.
c.
producer surplus of $600.
d.
consumer surplus of $400.
367. Economic efficiency requires that
a.
individuals take all actions within their power.
b.
only long-lasting, high-quality products be produced.
c.
income be distributed equally among individuals.
d.
all economic activity generating more benefits than costs to individuals in the economy be
undertaken.
368. If the demand for beer increased, what would be the effect on the equilibrium price and quantity of
beer?
a.
price increases, quantity decreases
b.
price decreases, quantity decreases
c.
price increases, quantity increases
d.
price decreases, quantity increases
Figure 3-24
369. In Figure 3-24, which of the following is true?
a.
At P3, consumer surplus and producer surplus are equal.
b.
At P2, consumer surplus is greater than producer surplus.
c.
At P1, consumer surplus is greater than producer surplus.
d.
At P1, consumer surplus and producer surplus are equal.
370. “Falling consumer income from the recent recession has hurt automakers in more ways than one. Not
only have sales of new cars fallen, but car prices have fallen as well. As a result, the major automakers
have announced cutbacks in production and layoffs of workers.” Which of the following places these
statements in the proper economic terminology within the context of the supply and demand model?
[Note: It may help to graph this first.]
a.
a decrease in demand and a decrease in supply
b.
a decrease in demand and a decrease in quantity supplied
c.
a decrease in quantity demanded and a decrease in quantity supplied
d.
a decrease in quantity demanded and a decrease in supply
371. “If gasoline were taxed, the price of gasoline would rise. Consequently, the demand for gasoline would
fall, causing the price to fall to the original level.” This statement is
a.
essentially correct.
b.
incorrect—after the demand falls, the price would fall but to some level higher than the
original level.
c.
incorrect—demand and quantity demanded are confused. The price increase would reduce
quantity demanded, not demand.
d.
incorrect—after the demand falls, the price would fall but to some level lower than the
original level.
372. Over the past 20 years both the quantity of health care provided and health care prices have been rising
rapidly. Economic theory would suggest that the observed data could best be explained as
a.
an increase in supply, while demand remained relatively constant.
b.
a decrease in both supply and demand.
c.
an increase in demand, while supply remained relatively constant.
d.
a sharp increase in both supply and demand.
373. A decrease in the supply of a good will
a.
decrease the demand for the good.
b.
cause the price of the good to fall.
c.
lead to an increase in the price of the good.
d.
increase the quantity of the good bought and sold.
374. Which of the following would most likely decrease the price of beef?
a.
lower prices of grains used to produce cattle feed
b.
higher prices for chicken, a substitute for beef
c.
a cow disease that destroys millions of cattle (and makes their meat unfit for consumption)
before they are ready for market
d.
an increase in consumer income
375. A decrease in the price of flour will shift the supply curve for donuts
a.
leftward, causing the equilibrium price to increase and quantity to decrease.
b.
leftward, causing the equilibrium price and quantity to decrease.
c.
rightward, causing the equilibrium price to decrease and equilibrium quantity to increase.
d.
rightward, causing the equilibrium price and quantity to increase.
376. When Adam Smith said economic activity was directed by an “invisible hand,” he was referring to the
fact that
a.
competitive markets motivate altruistic individuals to pursue productive activities that
only serve their private interests.
b.
when economic activity is directed by competitive markets, the actions of self-interested
individuals will generally serve the public interest.
c.
invisible forces will lead to economic chaos unless wise central planning directs economic
activity.
d.
scarcity is largely the result of invisible forces that would be eliminated if individuals were
free to pursue their own self-interests.
377. A hurricane damaged much of the housing in Miami. Shortly thereafter, the price of plywood rose
significantly. The events suggest that
a.
a decrease in the supply of plywood caused the price of plywood to rise.
b.
an increase in the supply of plywood caused the price of plywood to rise.
c.
a decrease in the demand for plywood caused the price of plywood to rise.
d.
an increase in the demand for plywood caused the price of plywood to rise.
378. If the demand for a good increases, which of the following will generally occur in a market setting?
a.
The price of the good will decrease.
b.
The supply of the good will increase.
c.
The quantity supplied will increase.
d.
Producer profits will fall.
379. A freeze in Florida devastates the orange crop at the same time a new study is released showing the
health benefits of vitamin C (leading consumers to want to buy more orange juice). How will the
equilibrium price and quantity of orange juice change in response to the combination of these two
events?
a.
Equilibrium quantity will decrease, equilibrium price will increase.
b.
Equilibrium price will decrease, the effect on quantity is ambiguous.
c.
Equilibrium price will increase, the effect on quantity is ambiguous.
d.
Equilibrium quantity will increase, the effect on price is ambiguous.
380. When competition is present and property rights protected and enforced, market prices will
a.
discourage profit-seeking business firms from producing efficiently.
b.
direct entrepreneurs toward production of goods that are inferior in quality.
c.
encourage self-interested individuals to develop skills that are expected to be valuable in
the future.
d.
always decrease.
381. The Invisible Hand Principle suggests that
a.
market prices direct individuals to produce more goods.
b.
individuals pursuing their own interests detract from the economic well-being of society.
c.
there should be stronger governmental initiatives to ensure cooperation for the betterment
of society.
d.
market forces tend to channel the actions of self-interested individuals into activities that
promote the general betterment of society.
382. The efficiency of market organization is dependent on which of the following?
a.
well-regulated supply and demand
b.
the availability of low cost resources and high tariffs on foreign imports
c.
competitive markets and well-defined and enforced private property rights
d.
Government establishment of the invisible hand principle and the inelasticity of certain
goods.
383. If the supply of a good increased, what would be the effect on the equilibrium price and quantity?
a.
Price would increase and quantity would decrease.
b.
Price would decrease and quantity would decrease.
c.
Price would increase and quantity would increase.
d.
Price would decrease and quantity would increase.
384. According to the law of supply, as the price of a good falls,
a.
buyers will buy more of the good.
b.
buyers will buy less of the good.
c.
sellers will produce more of the good.
d.
sellers will produce less of the good.
385. A movement along a demand curve
a.
is called a change in demand.
b.
is the result of a change in the price of the good.
c.
can be caused by many things.
d.
means the product is inelastic.
386. Economists would say that the demand for tacos is
a.
relatively inelastic because there are very few close substitutes available.
b.
relatively elastic because there are many substitutes for tacos.
c.
increasing because of reports of Mad Cow Disease.
d.
relatively inelastic because its demand curve is flatter.
387. Just before Valentine’s Day, the price of roses increases dramatically. This is because
a.
self-interested individuals try to charge more for a good than consumers are willing to pay.
b.
demand increases while the supply of roses remains relatively constant.
c.
the supply curve of roses is highly elastic.
d.
the demand for roses is relatively inelastic most of the year, but becomes more elastic as
demand increases.
388. If an increase in the price of peaches reduces the demand for cream, this indicates that peaches and
cream are
a.
normal goods.
b.
inferior goods.
c.
complements.
d.
substitutes.
389. Which of the following would most likely shift the supply curve to the left for Wii video games?
a.
an increase in the price of Wii video games
b.
a decrease in the price of computer chips used to make Wii games
c.
a decrease in the demand for Wii games
d.
an increase in the price of electronic components used to produce the Wii games
390. Which of the following is true of profits and losses?
a.
Profits direct entrepreneurs toward production of goods that are highly valued relative to
their cost, while losses direct them away from wealth-reducing activities.
b.
Profits indicate that the firm is charging prices that are too high, while losses indicate that
the firm needs to raise its prices.
c.
Profits indicate that the consumer is getting a bad deal, while losses indicate that the
consumer values the product highly relative to its cost.
d.
Profits indicate that the suppliers of resources are underpaid, while losses indicate they are
overpaid.
391. Which of the following would cause an increase in the price of gasoline and an expansion in the
equilibrium quantity?
a.
an increase in the price of crude oil, a key ingredient required for the production of
gasoline
b.
the introduction of a miracle carburetor that substantially improves the gas mileage of
automobiles
c.
a recession that substantially reduces the income of households
d.
an increase in the popularity and use of Sport Utility Vehicles that consume a lot of
gasoline per mile driven
392. Which of the following would lead to an increase in the demand for rental apartments in your area?
a.
a reduction in the rental price of apartments
b.
a sharp increase in the number of out-of-town students attending the local college
c.
an increase in the cost of the materials used to construct apartment units.
d.
an increase in unemployment and reduction in the income of people in your area
393. According to economic theory, which of the following would most likely cause the demand curve for
hamburgers to decrease?
a.
a drop in the price of hot dogs
b.
an increase in the price of hamburgers
c.
a drop in the price of hamburgers
d.
a technological advance that reduces the cost of making frozen hamburger patties.
394. Consumer surplus is the area on the graph
a.
above the supply curve and below the demand curve.
b.
below the demand curve and above the market price.
c.
that represents the gains that producers receive when they sell a product.
d.
that reflect the opportunity cost of producing the a good.
ESSAY
395. Suppose a person defects from Cuba (a country that generally disregards the use of markets) to the
United States and asks to see a market in action. Where would you take her? Did you give her a
complete showing of this market?
396. Two students are walking by a department store window that has on display a $400 dress. The English
major declares, “I want that dress but can’t afford it.” The economics major replies, “No, you don’t.”
Explain the logic of this reply.
397. Economists maintain that the price of a product has no effect on demand. How can this be true?
398. Susan says, “If the price of wool coats goes up, suppliers will offer more of the coats for sale.” Brad
replies, “It takes three months to harvest wool and employ all the steps necessary to produce a wool
coat. Quantity supplied cannot possibly increase for three months.” Is Brad correct? Why or why not?
399. A question on an economics exam asks, “What happens in the market for jelly when the price of
peanut butter increases?” Allison, an excellent student, shows the demand for jelly increasing. Is she
necessarily wrong? Why or why not?
400. A terrible storm wipes out 70 percent of the peanut crop. Explain and show graphically how this will
affect the market for peanut butter and the market for jelly, a complementary good.
ANS:
401. Sam lives in a town with a population of 3,000. He says, “This town really needs a pizza restaurant.
People want pizza and would be willing to pay a lot for it, but no one will open a pizza place because
they couldn’t make any money.” Evaluate Sam’s statement.
402. A recent editorial in a local newspaper argues, “Consumers need to know more about products than
just their price. They need to know how these prices are determined, who owns the businesses, and the
wages of the workers.” Is the editorial writer correct? Why or why not?
403. An agricultural economist reports that corn prices are very high this year and that corn growers are
earning substantial profits. He concludes that government action is needed to direct more farmers to
grow corn. Is such action necessary? Why or why not?
404. Around Easter time, the price of eggs rises. Some consumers complain about this and claim stores are
‘price gouging.’ Are there any positive functions played by the higher price of eggs around Easter?
What would happen if the price of eggs were not permitted to rise by law?
405. “The operator of the tunnel that links Britain and France, Eurotunnel, said that commercial and tourist
traffic using its car and coach shuttle service had fallen sharply in 2004, leading to a drop in operating
revenues of 4%. Eurotunnel’s chief executive, Jean-Louis Raymond, blamed cut-throat competition
from budget airlines.” (news story, January 2005)
a.
If Mr. Raymond is correct, are the services of airlines and Eurotunnel substitutes or
complements?
b.
Use demand and supply analysis to explain how lower airfares between Paris and London
impact the market for the shuttle services of Eurotunnel.
substitutes
The lower airfares shift the demand for the shuttle services to the left, leading to a reduction in
both the number of units sold and the revenues derived from the service.